GNPL formation moderated q-o-q (1.3% of loans, annualised vs. 1.4%). Credit costs and impaired loans ratio was broadly stable. With respect to the LAP segment, management highlighted that NPA ratios have been stable on y-o-y basis at 0.4% and exposure to relatively riskier NCR region is low at 15% of LAP book (<1% of overall loan book). Even the indirect exposure (via NBFCs) is not high. The bank has 4-5 accounts under discussion for SDR— however, the quantum is quite low. Pipeline for S4A or 5:25 refinancing is nil.

Well positioned for the longer term given: strong retail franchise; the company is still in the early stages of growth with multiple growth drivers; management has done a solid job of delivering key metrics.

The company has rapidly expanded its distribution network – it expects to grow its branch network to 1,200 by FY17 (+20% y-o-y).

We raise our price target from Rs 300 to Rs 525. We use a probability-weighted residual income model with three-phases—a five-year high-growth period and a 10-year maturity period, followed by a declining period. We use a cost of equity of 13.25% (down from 13.5% earlier), assuming a beta of 1.1 (unchanged), a risk-free rate of 7.25% (lowered from 7.5%) and a market risk premium of 5.5% (unchanged). We use probability weights of 65% for the base case; 10% for the bear case (to factor in the risk of a double dip in the economy), and 25% for the bull case (reflecting the probability of a V-shaped economic recovery, which our economists view as a slightly greater likelihood).

Our probability weightings remain unchanged. We increase our price target by 17% driven by: rolling-forward of reference year for valuation by 6 months from June-17 to Dec-2017; lower cost of equity given lower rates; and higher net interest margins over the medium term.